Bridgewater Bancshares Q4 2024 Earnings Report

Bridgewater Bancshares EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.24
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Bridgewater Bancshares Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $26.70 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bridgewater Bancshares Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 9:00AM ET

Bridgewater Bancshares (NASDAQ:BWB) operates as the bank holding company for Bridgewater Bank that provides banking products and services to commercial real estate investors, entrepreneurs, business clients, and individuals in the United States. The company provides savings and money market accounts, demand deposits, time and brokered deposits, and interest and noninterest bearing transaction, as well as certificates of deposit. It offers commercial loans to sole proprietorships, partnerships, corporations, and other business enterprises to finance working capital, capital investment, or for other business related purposes; paycheck protection program loans; construction and land development loans; 1-4 family mortgage loans; multifamily lending products; owner and non-owner occupied commercial real estate loans; and consumer and other loans. In addition, the company online, mobile, and direct banking services. Bridgewater Bancshares, Inc. was incorporated in 2005 and is headquartered in Saint Louis Park, Minnesota.

Bridgewater Bancshares Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning and welcome to the Bridgewater Bancshares 2024 4th Quarter Earnings Call. My name is Rocco, and I will be your conference operator today. All participants have been placed in listen only mode. After Bridgewater's opening remarks, there will be a question and answer session. Please note that today's call is being recorded.

[Operator]

At this time, I would like to introduce Justin Horstman, Vice President of Investor Relations to begin the conference call. Please go ahead, sir.

[Justin Horstman, Director of Investor Relations at Bridgewater Bancshares]

Thank you, Rocco, and good morning, everyone. Joining me on today's call are Jerry Bach, Chairman and Chief Executive Officer Joe Chabowski, President and Chief Financial Officer Nick Place, Chief Banking Officer and Jeff Kjellberg, Chief Credit Officer. In just a few moments, we will provide an overview of our 2024 Q4 financial results. We will be referencing a slide presentation that is available on the Investor Relations section of Bridgewater's website, investors. Bridgewaterbankmn.com.

[Justin Horstman, Director of Investor Relations at Bridgewater Bancshares]

Following our opening remarks, we will open the call for questions. During today's presentation, we may make projections or other forward looking statements regarding future events or the future financial performance of the company. We caution that such statements are predictions and that actual results may differ materially. Please see the forward looking statement disclosure in the slide presentation and our 2024 Q4 earnings release for more information about risks and uncertainties, which may affect us. The information we will provide today is as of and for the quarter ended December 31, 2024, and we undertake no duty to update the information.

[Justin Horstman, Director of Investor Relations at Bridgewater Bancshares]

We may also disclose non GAAP financial measures during this call. We believe certain non GAAP financial measures, in addition to the related GAAP measures, provide meaningful information to investors to help them understand the company's operating performance and trends and to facilitate comparisons with the performance

[Justin Horstman, Director of Investor Relations at Bridgewater Bancshares]

of our peers. We caution these disclosures should

[Justin Horstman, Director of Investor Relations at Bridgewater Bancshares]

not be viewed as a substitute for operating results determined in accordance with GAAP. Please see our slide presentation and 2024 Q4 earnings release for reconciliations of non GAAP disclosures to the comparable GAAP measures. I would now like to turn the call over to Bridgewater's Chairman and CEO, Jerry Bach.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Thank you, Justin, and thank you, everyone, for joining us this morning. We were pleased to finish 2024 with a strong quarter. We saw a robust balance sheet growth, a return to net interest margin expansion and superb asset quality. In addition, we were excited to close our acquisition of First Minnetonka Citibank, which was completed in mid December. A quick turnaround.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Thanks for the efforts of our incredibly talented team. We reported adjusted earnings of $0.27 per share, which excludes merger related expenses. Core deposit growth momentum continued in the 4th quarter as balances increased $211,000,000 or 31% annualized, excluding the deposits acquired from First Minnetonka Citibank. Our renewed focus on core deposit growth over the past 2 years has paid off as our teams continue to expand relationships and onboard new ones. On the loan side, the pickup in demand we saw in the back half of twenty twenty four translated into a rebound in loan growth as balances increased 7% annualized in the 4th quarter.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Again, this is excluding the loans acquired from First Minnetonka Citibank. We always aim to align core deposit growth with loan growth over time. In 2024, including the acquisition, we generated total core deposit growth of 22%, which exceeded loan growth of 4%, ultimately reducing our loan deposit ratio to 95%, the lower end of our range. This is important as we look ahead to 2025. After being more defensive minded from a growth perspective over the past couple of years due to challenging market conditions and reduced demand, our strong core deposit growth combined with the acquisition of First Minnetonka Citibank have improved our liquidity profile, putting us in a position to be more offensive minded moving forward, exactly where we wanted to be.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

As the interest rate environment improved, we were pleased to see net interest margin expand 8 basis points in the 4th quarter after remaining steady throughout much of 2024. This contributed to total revenue growth of nearly 9% in the 4th quarter. Asset quality also remains superb. After net charge offs and non performing assets briefly ticked higher in the 3rd quarter due to 1 central business district office loan, both metrics came back down in the 4th quarter when the office property was sold in December. We continue to feel good about the quality of our loan portfolio and the strength of our credit team.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Perhaps the most impactful thing that happened this quarter was welcoming the new team members and clients following the closing of First Minnetonka Citibank. The onboarding process was very smooth and overall response from clients and team members has been positive. The lessons we learned and the processes we developed through this transaction position us well as we think about executing on future acquisitions. It is worth noting that we received regulatory approval in just 55 days and closed the transaction in just 107 days following the announcement, a testament to our relationship with our regulators and the efforts taken to prepare for the deal in advance. Turning to Slide 4, over the past few years, we've highlighted our ability to consistently grow tangible book value as a key value driver of our strategy.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

After 31 consecutive quarters of tangible book value growth, we saw a modest decline of 3% in the 4th quarter due to the acquisition, but still saw 5% growth for the year. Our focus on consistently building tangible book value continues to be an important part of our story, and we expect to resume growth in 2025. With that, I'll turn it over to Joe.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Thank you, Jerry. Turning to Slide 5, return to steady net interest income growth has been a big focus for us. We have now seen this for 3 quarters in a row, including an increase of $1,400,000 or 5.3 percent from the 3rd quarter. This was the result of strong average earning asset growth as well as the 8 basis point expansion of the net interest margin to 2.32%. The margin expansion was driven by declining deposit costs and a steady loan yield following Fed cuts in late 2024.

[Joe Chybowski, CFO at Bridgewater Bancshares]

There was a 2 basis point impact related to First Minnetonka Citibank stub period net interest income following the deal close in mid December, as well as a 1 basis point impact from purchase accounting accretion. For the past several quarters, we've been talking about how our balance sheet is well positioned for rate cuts. We are pleased to see this play out in the Q4. Slide 6 provides a closer look at the margin drivers. With a large portion of our funding base tied to short term rates, we saw immediate repricing following the rate cuts in 2024.

[Joe Chybowski, CFO at Bridgewater Bancshares]

We've since begun to reduce rates on other deposit accounts as well. We've also seen a positive mix shift through a reduction in higher cost broker deposits, resulting in deposit costs declining 18 basis points to 3.40. Loan yields held relatively stable during the Q4 due to our larger fixed rate portfolio, while yields on our smaller variable rate portfolio repriced lower following 100 basis points of rate cuts. New loan originations with a weighted average yield in the high 6s ramped up in the 4th quarter, but we won't see the full impact until the Q1. Given the composition of our portfolio, we would expect to see the loan yield continue to slowly increase going forward, even if short term rates continue to fall.

[Joe Chybowski, CFO at Bridgewater Bancshares]

We still have $680,000,000 of fixed and adjustable rate loans maturing or repricing over the next 12 months at yields below new origination levels. Overall, we expect modest net interest margin expansion in 2025, the magnitude of which will be dependent on future Fed moves and the shape of the curve. Turning to Slide 7, you can see that total revenue and pre provision net revenue continue to increase. While much of this was due to margin expansion and the increase in net interest income, non interest income was also very strong in the 4th quarter, up $1,000,000 or 66 percent. This was driven by higher letter of credit fees due to elevated construction activity and over $500,000 of swap fees, as swaps made more sense for borrowers relative to other structures given the shape of the curve.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Looking ahead to 2025, letter of credit fees will likely return to more normalized levels. We may see some additional swap fee income as well as we continue to leverage the product and educate borrowers. However, it is very transaction specific, so it is likely to be sporadic. The 1st Minnetonka Citibank acquisition did not contribute materially to fee income in the Q4 as the acquisition closed in mid December. On Slide 8, expenses continue to be well controlled and track in line with expectations.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Total 4th quarter non interest expense of $16,800,000 included $488,000 of merger related expenses. Excluding this, the majority of the quarter of increase was related to salary and benefit expense. With the acquisition closing in mid December, we saw approximately $200,000 of stub period expenses during the Q4. We have also been pleased to see our adjusted efficiency ratio trend from the high 50s into the mid 50s over the past couple of quarters. With that, I'll turn it over to Nick.

[Nick Place, CBO at Bridgewater Bancshares]

Thanks, Joe. Turning to Slide 9, core deposit growth was a highlight for us again this quarter as balances increased $211,000,000 or 31 percent annualized. This excludes $217,000,000 of core deposits from First Minnetonka City Bank acquisition. For the year, we were able to grow core deposits 13% excluding the acquired deposits. The strong growth during the quarter was a result of bringing on new clients, expanding existing relationships and leveraging a new online high yield savings product we launched in the back half of the year.

[Nick Place, CBO at Bridgewater Bancshares]

The deposit mix also improved as we pushed out $75,000,000 of broker deposits in the Q4 and nearly $200,000,000 over the course of 2024. This was part of a deliberate strategy to optimize the balance sheet for longer term profitable growth. As we have said, core deposit growth is not always linear from quarter to quarter due to the nature of our deposit base, but we have shown an ability to steadily grow core deposits over time. We expect 2025 core deposit growth to track in line with loan growth, keeping in mind that we could see some quarters with larger inflows or outflows. Loan growth was also strong this quarter, as you can see on Slide 10, with balances up 7% annualized excluding $117,000,000 of acquired deposit or acquired loans.

[Nick Place, CBO at Bridgewater Bancshares]

In total, we saw full year loan growth of nearly 4% in line with our low to mid single digit target for the year.

[Nick Place, CBO at Bridgewater Bancshares]

The 4th quarter growth was

[Nick Place, CBO at Bridgewater Bancshares]

a result of the increased loan demand we have seen in recent quarters, which translated into a nice uptick in new originations. This strong demand has continued as borrowers remain interested in new projects following the recent rate cuts. As we sit here today, our loan pipeline remains near 2 year highs. That said, competition remains stiff and is resulting in tighter spreads, while the potential of higher for longer rates in the shape of the yield curve may impact demand moving forward. Overall, the strong deposit growth over the past 2 quarters, including the acquisition of First Minnetonka Citibank, has put us in a better liquidity position as our loan to deposit ratio dropped below 95%.

[Nick Place, CBO at Bridgewater Bancshares]

Couple this with a more favorable environment, and we feel we can be more aggressive in 2025 returning to more normalized levels of profitable growth as we target mid to high single digit loan growth for the full year of 2025. Slide 11 provides a closer look at our origination and payoff activity, which saw a reversal during the Q4. As I mentioned, we saw a large increase in new originations after slowing over the past few quarters. We also saw a seasonal increase in line advances in the Q4, which could create an early growth headwind in 2025 as its balances likely run off. Payoffs on the other hand remained elevated, but declined from 3rd quarter levels.

[Nick Place, CBO at Bridgewater Bancshares]

This just means that there continues to be liquidity in the market, which we can redeploy the new loans at higher yields. Overall, net loan growth will continue to be dependent upon the levels of new originations and payoffs given the current rate environment. Slide 12 looks at the mix of the loan portfolio now including the loans from First Minnetonka Citibank, which made up all of the growth in leases and the majority of the growth in the 1 to 4 family mortgages during the Q4. We saw strong growth in our non owner occupied CRE and multifamily portfolios. Despite the growth, the overall mix of multifamily declined slightly due to the acquisition.

[Nick Place, CBO at Bridgewater Bancshares]

While migration out of the construction portfolio continued, we have seen an increase in new construction projects. Construction commitments in the Q4 were the highest we have seen since the Q4 of 2022. We would expect these to fund and translate into balance sheet growth over the next year or so. We remain very comfortable with the overall mix of the loan portfolio, especially with the additional diversification from the acquisition. Looking ahead to 2025, we expect to see additional growth across CRE and C and I as well as multifamily, where we continue to leverage our expertise in the affordable housing space.

[Nick Place, CBO at Bridgewater Bancshares]

With that, I'll turn it over to Jeff.

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

Thanks, Nick. Slide 13 highlights our multifamily and office exposure. Positive multifamily market trends in the Twin Cities have continued with vacancy rates well below peak levels as demand has remained elevated and construction has slowed. The strong labor market and near nation leading affordability has led to improved absorption levels, all of which suggest a favorable outlook for future occupancy and rent growth. We have also started our 2025 covenant testing for our multifamily and non owner occupied CRE portfolios, which we expect to complete about 75% by the end of the Q1.

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

As in prior years, we will have action plans in place for any issues identified. We remain bullish on multifamily in the Twin Cities, given the improved market trends and our track record and expertise in this space. Our non owner occupied CRE office exposure remains quite limited at just 5% of total loans. This includes 3 office properties located in central business districts, totaling $26,000,000 One of these loans is currently a rate of special mention. It cash flows today, but has lease rollover risk, which we are monitoring.

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

The other two loans are performing well. You may recall that we took a $935,000 charge off on the Central Business District office loan during the Q3. We mentioned it was under purchase agreement to be sold, which was completed in December. We took another $300,000 cleanup charge off on this credit in the Q4, but it is now off our books. The total loss on this loan was about 15% of the principal balance, which is reasonable given today's environment.

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

While we feel comfortable with our office portfolio overall, there is still market stress in this asset class for properties depending on their characteristics, which is reflected in our risk ratings. Turning to Slide 14. Our overall credit metrics remain very clean in the 4th quarter with only 3 basis points of net charge offs and 1 basis point of non performing assets. We recorded a $1,500,000 provision in the 4th quarter, which included $950,000 for non PCD loans acquired from First Minnetonka Citibank. We also had

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

a

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

$725,000 provision for off balance sheet credit exposure related to unfunded commitments. We remain well reserved at 1.35 percent of gross loans, which is well in excess of peer levels. On Slide 15, we are including our 1st special mention rated loan with our watch list loans. We did see an uptick in watch and special mention bucket due to 1 multifamily loan, which we are keeping an eye on and the addition of First Minnetonka Citibank watchlist loans. Substandard loans declined due to the sale of the Central Business District office property I mentioned earlier.

[Jeff Shellberg, EVP & CCO at Bridgewater Bancshares]

We continue to monitor the loan book as well as the interest rate and economic environments, but overall, we feel good about the quality of the portfolio as we head into 2025. I'll now turn it back over to Joel.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Thanks, Jeff. Slide 16 highlights our strong capital ratios, which had been steadily building over the past several quarters as loan growth slowed. Given the acquisition completed in the 4th quarter, we saw a modest decline in the ratios. However, CET1 remained above our 9% target. Going forward, we expect to continue modestly building capital, keeping in mind that we anticipate the pace of loan growth to increase in 2025.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Given the acquisition, we did not repurchase any shares during the Q4 and we still have $15,300,000 remaining under the current share repurchase authorization. We will continue to evaluate future repurchases based on a variety of factors, including capital levels, growth opportunities and other uses of capital. Turning to Slide 17, I'll recap our expectations for 2025. To start, I would say that all of our assumptions from the First Minnetonka Citibank acquisition remain on track. This includes the 30% cost savings we expect to realize in 2025 as well as the total merger related expenses.

[Joe Chybowski, CFO at Bridgewater Bancshares]

And the purchase accounting marks actually came in a bit more favorable than expected, resulting in less goodwill. With the additional liquidity from the deal, we expect full year loan growth in 2025 to be in the mid to high single digit range, while maintaining a loan to deposit ratio between 95% 105%. We expect continued modest net interest margin expansion in 2025, the pace of which will depend on the rate outlook and the shape of the yield curve, as a higher for longer and flat yield curve environment could mute some of the upside. We anticipate that purchase accounting accretion will contribute an additional 1 to 2 basis points to the margin per quarter in 2025. Regardless, with some margin expansion and a pickup in loan growth, we believe we will see continued net interest income and revenue growth.

[Joe Chybowski, CFO at Bridgewater Bancshares]

We expect non interest expense growth excluding merger related expenses to be in the high teens range for the full year of 2025, supporting the additional assets from the acquisition and anticipated increase in our pace of loan growth. Expense growth will be driven by continued investments in our people and technology, as well as some redundant expenses until we reach systems conversion. Provision will remain dependent on the pace of loan growth and the overall asset quality of the portfolio. We could also see additional provision for unfunded commitments as new construction activity continues. I'll now turn it back over to Jerry.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Thanks, Joe. Finishing on Slide 18, I want to provide an overview of our strategic priorities for 2025. 1st and foremost, we look forward to returning to a more normalized level of profitable loan growth. We think wrapping back up to the mid to high single digits is certainly feasible, especially given the improved market conditions and our stronger liquidity position. And we believe we can do this without compromising on credit.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

2nd, we aim to continue gaining loan and deposit market share. Obviously, with our growth aspirations, this is a key priority for us every year. But now we have an expanded branch network, adding 2 new branches through the acquisition and a new de novo branch scheduled to open in the East Metro later this year. This is an expansion into a growing part of the Twin Cities with very little competition and a nice concentration of current and potential clients. We also continue to make inroads in targeted verticals such as our women's network and affordable housing.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

We have plenty of room to grow in the affordable housing space as we leverage our expertise on national level. This is an opportunity we are well suited for and are excited about the commitment to this space. Also, over the past several years, we have been the beneficiary of market disruption in the Twin Cities as several local banks were acquired by out of state buyers. With more of this likely coming in 2025, we know we will see opportunities to add talent and win new client relationships. 3rd is leveraging our technology investments to support growth, the client experience and efficiencies across the bank.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

This includes expanding the scope of recent investments as well as rolling out a new online banking solution for retail and small business clients. This will enable us to expand our product offering, making us even more attractive to the client base we already serve and beyond. Finally, we will focus on the systems conversion of our recent acquisition, which we expect to occur in the Q3. We're in a great position to ensure a smooth transition. We also want to be ready to execute on any additional M and A opportunities that may become available and make strategic sense for us.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Overall, I'm excited about the outlook for 2025. We have the team, board support and engaged leadership to continue moving the bank forward. Our team takes time to plan and has proven it can execute independent of market forces. We have plenty of opportunities that we intend to take advantage of that will enable us to drive value for the organization and ultimately our shareholders. With that, we'll open it up for questions.

[Operator]

Thank you. We'll now begin the question and answer session. Today's first question comes from Brendan Nosal with AbbVie. Please go ahead.

[Brendan Nosal, Director - Equity Research at Hovde Group]

Hey, good morning everybody. Hope you're doing well.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Good morning, Brendan.

[Brendan Nosal, Director - Equity Research at Hovde Group]

Maybe just starting off here on the improved growth outlook for 'twenty five. I mean, certainly it seems like you've green lit more growth than you saw in 2024. Can you just talk about how much of that is an increase in credit supply on your part versus an increase in loan demand in the underlying market? And then tie that into how that factors into the funding complexion over the next 12 months? Thanks.

[Nick Place, CBO at Bridgewater Bancshares]

Hey, Brandon, this is Nick. We've always felt that our growth engine is there and operating. As we mentioned in the prepared remarks, we were very intentional throughout 'twenty four about trying to align our loan growth with our deposit growth. And I think we did a good job to not only do that, but exceed in that category. As we think about 2025, the momentum that we had in core deposit growth through the Q4 and as we've seen that continuing with our teams and then layer in the addition of First Minnetonka Citibank, I think we feel like we're really positioned to be able to take advantage of the opportunities in our market.

[Nick Place, CBO at Bridgewater Bancshares]

The pullback in rates did help some deals to some transactions to pencil a bit easier in the Q4. But that said, we continue to get

[Nick Place, CBO at Bridgewater Bancshares]

a lot of looks at

[Nick Place, CBO at Bridgewater Bancshares]

a lot of transactions that we've been selective on in the past or in some cases had a wider margin on our quotes just to make sure that those transactions were as profitable as we needed them to be given our balance sheet composition. And given the more favorable structure of our balance sheet today, I think we're really positioned well to be able to go be aggressive on the really great deals in the market that we continue to get in front of, which should translate to future growth. So we really feel great about our position and what the prospects look like for next year.

[Brendan Nosal, Director - Equity Research at Hovde Group]

Okay, awesome. Thank you, Nick. Maybe turning to the expense outlook, kind of just pairing up the high teens expense outlook versus the mid to high single digit organic loan growth. I mean, is that discrepancy just due entirely to First Minneton coming on to the cost base? And I guess, in other words, like is that core relationship between your asset growth and your cost growth still intact?

[Joe Chybowski, CFO at Bridgewater Bancshares]

Yes. Good question, Brendon. Yes. So I think the high teens guide, like you said, it's if you see the high single digit loan growth translate, which we're confident will, obviously, that's where you get our legacy Bridgewater guide in terms of expenses. Yes, and the other half of that, to your point, is really just assuming the First Minnetonka City operation.

[Joe Chybowski, CFO at Bridgewater Bancshares]

I think when we looked at it, there were 5% of our assets, but 10% of our expense base. So I think we'll spend 25% going through and really trying to rationalize those expenses, feel good about the cost saves. But obviously, there's certainly some redundancies and duplication that we work through throughout 2025. So to your point, that's how you back into that high teens guide.

[Brendan Nosal, Director - Equity Research at Hovde Group]

Yes. Okay. That makes sense, Joe. Let me sneak one more in, Joe, for you. I'm going to try and peg you down on the margin outlook a little more here.

[Brendan Nosal, Director - Equity Research at Hovde Group]

So core margin was up 9 basis points for the quarter without really any help from earning asset yield side of the equation. So I guess as we look ahead, deposit pricing should still lie down a little more and then you get that more powerful back book loan repricing, which should help the left side of the balance sheet yields. So what does modest margin expansion guide per quarter mean relative to this quarter's 9 basis points of expansion?

[Joe Chybowski, CFO at Bridgewater Bancshares]

Yes. I mean, it's a good question. I think when we think about 1Q, I mean, we anticipate similar traction that we saw in the Q4 when we think about the expansion that translated. So I think you've laid out exactly the dynamics of the balance sheet. For context, cost of deposits in December was a 3.31%.

[Joe Chybowski, CFO at Bridgewater Bancshares]

So that's down 9 basis points from the quarterly average of $3.40 So I think that'll provide some insight to you on how to think about it. But I think overarching, I mean, it's the rate outlook is obviously very uncertain. Powell was pretty non committal yesterday in terms of cuts. And so we only have one cut baked into 25%. And obviously, that explicitly drives the funding side, which we have a significant amount of deposits tied to short term rates.

[Joe Chybowski, CFO at Bridgewater Bancshares]

And so if you only have one cut in 2025, there's less there. But I think for us, we continue to

[Joe Chybowski, CFO at Bridgewater Bancshares]

look at the rest of

[Joe Chybowski, CFO at Bridgewater Bancshares]

the deposit base and really rationalize expense or deposit costs across the deposit portfolio and we see continued opportunity there. And then obviously with the pickup in loan growth, while the loan yields continue to expand, I think more importantly, when you put all that together, we're really trying to drive net interest income. And I feel like with this return to growth, I mean, that's where we're most focused on. So the modest guide on the NIM side, obviously, I think you kind of put that all together, we're confident with and I feel like 1Q should look similar to 4Q.

[Brendan Nosal, Director - Equity Research at Hovde Group]

Okay, fantastic. Thank you for taking my questions.

[Operator]

And our next question comes from Jeff Rulis with D. A. Davidson. Please go ahead.

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

Thanks. Good morning. Joe, just to circle back to the margin, do you have the December average for the margin itself?

[Joe Chybowski, CFO at Bridgewater Bancshares]

Yes, 2.36 in December.

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

Got

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

you. And the modest growth, does that exclude the I know the accretion, the 1 to 2 basis points is modest in its own right, but does that include the accretion as well or is that accretion would be on top of modest margin expansion?

[Joe Chybowski, CFO at Bridgewater Bancshares]

No, that's included. So full year accretion is right around $3,000,000 That's how we get to the 1 to 2 basis points per quarter. That's included in the modest guide.

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

Okay.

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

Fair enough. And maybe next on the loan growth guide, just attacking the other piece of this would be, I would assume there's some assumption of or ring fencing payoff activity for the year. Anything to glean in terms of expectations of you expect sustained levels more or less, anything on it's a tough number to nail down, but anything on payoffs?

[Nick Place, CBO at Bridgewater Bancshares]

Hey, Jeff. Yes, it's a tough number to pin down. I mean, as we model forward, I think we're expecting sort of similar levels to what we saw in Q4. I think that's probably a good run rate for us for a little while. We feel really good though about our ability to continue to put out replace those with new originations.

[Nick Place, CBO at Bridgewater Bancshares]

Our Q4 new origination levels were as high as they've been since the summer of 2022. So even with the elevated levels of payoffs that we've seen over the last couple of quarters, I think this return to a more normalized level of new origination should allow us to continue to face that headwind and push forward with further growth.

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

Got it. And then just a housekeeping, on mapping the merger costs, were those largely professional fees and other expenses? Just trying to line item where those might come out.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Yes, that's exactly right. So about the $700,000 was primarily that. And then obviously, more operational will translate in 2025.

[Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson]

Okay, great. Thanks.

[Joe Chybowski, CFO at Bridgewater Bancshares]

Still on track for that still on track for one time expenses that we outlined when the deal was announced.

[Operator]

Thank

[Operator]

you. Our next question comes from Nathan Race with Piper Sandler. Please go ahead.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Hey, guys. Good morning. Thanks for taking the questions. Looking at Slide 21, with roughly 14%, 15% of your funding base that can reprice lower over the next 12 months at come off at $450,000,000 Just curious kind of what you're seeing in terms of kind of the replacement rate on that funding based on kind of where you're priced on CDs today and what you can see in wholesale channels as well?

[Nick Place, CBO at Bridgewater Bancshares]

Hey, Nate. This is Nick. The question was on loan yields on as deals roll off.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

No, I'm sorry. It was on the right side of the balance sheet. Looking at Slide 21, you have about 14% of your funding base. It's going to reprice lower this year. So just curious kind of what the incremental replacement rate on that funding based on kind of where you're priced on CDs today and kind of what you can see in wholesale channels as well?

[Joe Chybowski, CFO at Bridgewater Bancshares]

Yes, Nate, this is Joe. So I think, we're seeing obviously better opportunities to reprice there. I mean, stuff is now in the high 3s, if you want to replace on short term CDs. I think money market opportunities are somewhat linked to Fed funds, but we're able to actually price with somewhat of a Fed funds minus on the money market side. So continue to also have optionality to call the brokered CD portfolio.

[Joe Chybowski, CFO at Bridgewater Bancshares]

So I think we've been really mindful with that always. And I think this year, we called almost $200,000,000 of brokered deposits north of 5%. We're able to call and reissue in some cases or in cases like this last quarter where we certainly had strong core growth, we're able to just call and not replace and obviously bring in lower cost core deposit money. So definitely seeing opportunities outside of that that's explicitly tied to Fed funds to also reprice deposits.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Okay, great. It's very helpful. And just going back to the margin discussion and kind of put it in the context of NII growth expectations for this year. If we do get that one Fed cut in maybe the middle part of the year, just curious if you can kind of speak to the magnitude of NII growth that you expect based on kind of what we've discussed from a loan and deposit growth outlook?

[Joe Chybowski, CFO at Bridgewater Bancshares]

Yes. I mean, I think it's one of those when you put it all together that we expect from an NII perspective, something to roll in place with asset growth. So I mean, if you're high single digit asset growth, you'd expect something like that to translate on the net interest income side. I think it's hard given the timing of all that, but I think when you look about the composition of the balance sheet and the growth that we anticipate on the loan side, continued repricing higher with what's rolling off,

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

high single digit range, correct?

[Joe Chybowski, CFO at Bridgewater Bancshares]

No, I think in the low double digit range, I think is how we think about NII, just given those components.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

Okay, got it. Makes sense. Jerry, in your remarks, you mentioned some opportunities to benefit from some of the disruption going on in the Twin Cities of late. So just curious maybe where you're looking to add talent. I believe you guys picked up a small wealth management operation with the recent acquisition, but just curious maybe kind of where you're looking to add talent across the organization going forward?

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

It really continues to be across all of our departments, whether that be in risk or in our treasury departments or our loan portfolio, it's there's been with the disruption with Brammer being sold is certainly positive for us. And we've talked to some people over there and from other banks too. So it's we let there's some good talent out there left to be picked up, that's for sure.

[Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies]

All right, guys. I appreciate all the color. Thank you.

[Operator]

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Jerry Bach for closing remarks.

[Jerry Baack, CEO & Chairman at Bridgewater Bancshares]

Well, I just want to thank everybody for joining the call today. We're very pleased with the strong finish to our 2024 and the momentum we have going here in 2025. I also want to shout out that and welcome the First Minnetonka Citibank team members and their client base, and of course, the team that we've had here for a long time. So it's continue to be very optimistic about 2025 and I appreciate everybody joining the call today.

[Operator]

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Participants

Executives

• Justin Horstman, Director of Investor Relations
• Jerry Baack, CEO & Chairman
• Joe Chybowski, CFO
• Nick Place, CBO
• Jeff Shellberg, EVP & CCO

Analysts

• Brendan Nosal, Director - Equity Research at Hovde Group
• Jeffrey Rulis, MD & Senior Research Analyst at D.A. Davidson
• Nathan Race, Director & Senior Research Analyst at Piper Sandler Companies